The personal income report came out, and the headline number was that it increased at an 0.5% annual pace; it happens that it was over 0.54%, and that more than all of the increase came from employee compensation (i.e. other components, as a whole, decreased slightly). For the first four months of the year, employee compensation increased at an 8.4% annual rate — the last month was higher — which requires, if it continues, that growth be very strong, inflation intolerably high, or that the portion of GDP going to labor increase. I expect personal income from employee compensation to continue to rise at a decent clip, and I expect some of it to come from corporate profits (i.e. the portion-of-GDP increase) and some of it to turn into inflation. (The first quarter numbers for GDP growth and its deflator are enough to cover 8.4%, but I'd be far more surprised if GDP growth hit 5% again this quarter than if employee compensation slowed down.)

According to Ernst & Young, the accounting firm, bad loans in the Chinese financial system have reached a staggering $US911 billion..., including $US225 billion in potential future [non-performing loans] in the four largest state-owned banks.

This equals 40 per cent of gross domestic product and China has already spent the equivalent of 25-30 per cent of GDP in previous bank bail-outs.

The what the personal income report breaks out as income to labor rose at a 6.5% rate from Q4 to Q1; with GDP at 4.8%, that suggests a unit labor cost rise of 1.7%. This doesn't seem high enough for concern, especially with some ability for businesses to absorb unit labor cost rises for a while before passing them on to consumers, but GDP growth is almost certainly going to come down significantly from that figure, and I'm not sure personal income is likely to follow suit; unit labor cost increases for the next couple quarters will tend to run a bit higher than that. (The official unit labor cost number comes out in the productivity report, which I believe will be announced Thursday.)